Nov 4, 2009
What is Qualified Small Business Stock?
"Qualified Small Business Stock" is stock that qualifies for certain federal income tax benefits: first, if the stock is held for at least five years, half of the gain realized on its sale is not taxable; and second, tax on even the taxable portion of such gain may be deferred by rolling over the proceeds into other Qualified Small Business Stock. Only individuals, estates or trusts (including those who hold their stock through S corporations, partnerships or other pass-through entities) qualify for these benefits. The stock must be purchased directly from the corporation (including by exercise of a stock option or conversion right). In addition, the issuing corporation must be a C corporation; cannot have gross assets at the time the stock is issued in excess of $50 million; must use at least 80% of its assets in the conduct of a qualified business. Service businesses, such as those businesses providing medical, legal, engineering, architectural, accounting, consulting, brokerage or financial services (including banking, insurance, leasing and investing) are not qualified businesses. Other requirements and exceptions, including alternative minimum tax implications, also apply.
